Examples of Different Value Chains -BISWAJIT NAG IIFT, New Delhi Ra bel lott i Table 1. Sectoral Groups: A Pavitt Taxonomy for Latin America Groups Industries Learning Patterns Description Co mp • Most new techniques originate from machinery and chemical industries etit 1. Traditional Textile and garments, Mainly Supplier ive Manufacturing Footwear, Furniture, dominated • Opportunity for technological accumulation are focused on improvements and ne modifications in production methods and associated inputs, and on product ss Tile design. an d • Most of technology is transferred internationally, embodied in capital goods. Up gra • Low appropriability, low barriers to entry din g • Importance of basic and applied research led by public research institutes due 2. Resource- Sugar, Tobacco, Wine, Supplier dominated in to low appropriability of resources Cl based Fruit, Milk (Science-based) ust • Most of Innovation is generated by suppliers (machinery, seeds, chemicals industries ers Extraction industries etc.). Increasing importance of international sanitary and quality standards, an and of patents d Val • Technological accumulation is generated by the design, building and 3. Complex Automobile and Scale intensive firms ue operation of complex production systems or products. Radical innovation is Ch Product autoparts, Aircraft, risky. ain Systems Consumer electronics s: • Process and Product technologies develop incrementally. For consumer Lat industries electronics, technological accumulation emerges mainly from corporate R&D in labs and university skills. A me • Appropriability is medium, barriers to entry high ric a • Often-small firms. Important user-producer interactions. Learning from 4. Specialised Software Specialized suppliers 2 advanced users. w Suppliers w • Low barriers to entry and low appropriability w. • High in-house R&D for development of edge technologies pie tro bel Source: Adapted from Pavitt, 1984, Bell and Pavitt, 1993, Malerba, 2000. li.t k Design (High Value Added) - After researching consumer wants and needs, automakers begin designing models which are tailored to the public demand. In the past, this design process has taken up to five years. Today, however, through the extensive use of computers, it is possible to develop prototypes, or "concept cars," from sketches in less than a year. Raw Materials (Low Value Added) - These include rubber, glass, steel, plastic, and aluminum. Over the past few years, the cost of raw materials has increased significantly, mostly due to the price increase of oil and natural rubber. Also, companies are now using aluminum and plastic in place of steel whenever possible in order to lessen the weight of the automobiles, which in turn improves fuel efficiency. Parts (Medium Value Added) - Tires, windshields, and air bags are examples of parts. While the automobile industry as a whole has become more consolidated, the U.S. auto parts sector remains highly fragmented. It includes four primary sub-categories: original equipment manufacturers (Delphi and General Electric), replacement parts manufacturing (Cooper Tire and Rubber and Federal-Mogul), replacement parts distribution (NAPA), and rubber fabricating (Goodyear and Cooper). Assembly (Medium Value Added)- Due to the combination of rising raw materials' costs and consumers' eternal search for the lowest price, companies are looking for ways to cut costs out of the manufacturing process. Recent trends to reduce costs include using fewer parts in each vehicle component, minimizing industrial waste and pollution, and having parts delivered to assembly plants on a just-in-time basis. Marketing (High Value Added) - Marketing is an integral part of the value chain, since it is the primary basis for consumers' perceived values. Automakers and individual dealers work together to create national, regional, and local marketing strategies. These may include television and radio advertising or special incentives offered to customers. In addition, firms have started advertising more online. GM, for example, spent 67% more on online advertising in 2005 than it did in the previous year. Distribution and Sales (High Value Added) - After production is complete, automobiles are shipped to dealerships around the world to be sold. As mentioned previously, dealers may offer incentives to increase sales. OEM I T n e f o c 1st tier Supplier h r n m o a 2nd tier Supplier l t o i g o y n 3th tier Supplier Source: Stephan, 1999. Consequence of changes in value- added strategies for the sourcing behaviour of OEMs ` The Textile and Apparel Supply Chain comprises diverse raw material sectors, ginning facilities, spinning and extrusion processes, processing sector, weaving and knitting factories and garment (and other stitched and non-stitched) manufacturing that supply an extensive distribution channel. This supply chain is perhaps one of the most diverse in terms of the raw materials used, technologies deployed and products produced. Cotton Distribution (Farms) Ginning Composite Channel Jute/Wool/Silk (Export & Mills (spinning, Garments & (farms) Processing/ weaving,processing) Domestic Polymers Stand-Alone Accesories Markets) Finishing Cloth (Petrochemical Weaving(mid- Plants) size) Powerlooms (small) Yarn Handlooms Knitting Spinning Cone Cloth Hank Grey Man-Made: Filament Extrusion Other Textile Process Products Figure 1: The Textile and Apparel Supply Chain The Textile Supply Chain Consumer’s Producer’s (Willingness to pay) (Revenue) Cost chain Value proposition The challenge : Profit Health Distribution Life style Marketing Convenience Logistics Pleasure Production Materials Nutrition ` Value builds up across the supply chain ` Upstream and downstream companies are interdependent ` Profit making positions are not uniformly distributed ` If input costs fluctuate, there is a price transmission uncertainty ` Some costs are external, eg. environmental ` Not only for multinationals ` SMEs also have unique and specific strategic capabilities ! ` These can be inter-company combined to create value ` Examples : ◦ Pain Quotidien : « social » network of sales points ◦ Marcolini + Nestlé : international development ` Requisites : ◦ assessing one’s own strategic capabilities ◦ monitoring the business environment ! ` A role for SME support agencies ! TourismTourism principalprincipal –– SupplierSupplier ofof tourismtourism productsproducts andand servicesservices IntermediaryIntermediary –– InIn chargecharge ofof bundling,bundling, packagingpackaging andand promotingpromoting thethe productsproducts andand servicesservices ConsumerConsumer –– TouristTourist andand visitorvisitor Tourism Consumer Intermediary Principal (Tourist) Simple Tourism Value Chain 27 November 2008, Hue Viet Nam by ESCAP 14 TraditionalTraditional TourismTourism VCVC Consumer National Tourism Travel Agent Organization Regional Tourism Org. Tour Operator GDS/CRS Local DMO Group/ Consortium CRS Accommodation at Destination Air Car Rail/ Travel Rental Bus CRS: Computerised reservation System, GDS: Global Distrbution System 27 November 2008, Hue Viet Nam by ESCAP TourismTourism andand RelatedRelated SectorsSectors ImproveImprove productproduct andand serviceservice standardsstandards ProvideProvide anan intermediateintermediate exportexport marketmarket EnhanceEnhance competitivenesscompetitiveness CreateCreate demanddemand forfor exportexport productsproducts DriveDrive exportsexports throughthrough jointjoint branding/branding/ marketingmarketing Agriculture Transportation Tourism Production Accommodation 27 November 2008, Hue Viet Nam 16.